After the Market Crash: Procuring Recycling Processing Agreements

Transcription

1 After the Market Crash: Procuring Recycling Processing Agreements 2014 Missouri Control Coalition Conference Presented By: Laura Drescher July 1, 2014

2 Presentation Overview Importance of Recycling Processing Procurements to Communities Procurement Experience Procurement/Bid Process Case Studies Best Practices 2

3 Importance of Recycling Processing Procurements to Communities 3

4 Recycling in Missouri In 1990, Senate Bill 530 established a statewide goal of reducing waste by 40 percent. Each year, our state landfills over 4 million tons of materials which could have been diverted. Waste and Scrap are one of Missouri s top ten exports totaling $451 million dollars in Missouri Department of Economic Development $2,000,000+ has been saved by Missouri State Government on waste hauling services as a direct result of recycling from MO State Recycling Program,

5 Effects of the Crash After the 2008 market crash, communities faced: Significant revenue decreases; Requests from processors to renegotiate agreements; Termination of existing agreements; and Uncertainty concerning terms and financial commitments that processors would be willing to include in new agreements. 5

6 Procurement Experience 6

7 Solid Waste Services Burns & McDonnell provides a variety of solid waste services ranging from comprehensive technical design and construction to long-range planning and procurement services.

8 Procurement Staff Scott Pasternak Veronica Roof Bob Craggs

9 Extensive Procurement Experience Provides Understanding of Key Issues Procurement Expertise Multiple procurements, negotiations and evaluations Range of services: collection processing, disposal and conversion technology Authored best management practice manual for solid waste and recycling procurement Published articles and conducted workshops on procurements 9

10 Solid Waste and Recycling Procurement Experience Sampling of Procurement Projects City of Little Rock, AR Citrus County, FL City of Cedar Park, TX City of Coolidge, AZ City of Hollywood, FL City of El Paso, TX City of Phoenix, AZ Sarasota County, FL City of Fort Worth, TX City of Nogales, AZ City of Olathe, KS City of Georgetown, TX Town of Queen Creek, AZ Cities in Ramsey County, MN City of San Antonio, TX City of Tempe, AZ City of Minneapolis, MN City of Victoria, TX City of Tucson, AZ City of Oklahoma, OK City of Waco, TX City of San Jose, CA City of Tulsa, OK H-GAC, TX Broward County, FL Beaufort County, SC NCTCOG, TX Charlotte County, FL City of Austin, TX The Woodlands, TX

11 NCTCOG Recycling Contract Negotiation Guidebook: Comprehensive Guide for Local Governments and Private Companies Topics include Procurement process description Processing and collection contract provisions Commodity price discussion Detailed financial explanations Sample contract language Case studies from cities within region and outside of region Available at 11

12 Recycling After the Crash Highlights Case Studies

13 Procurement/Bid Process 13

14 Procurement Process Overview Select a procurement approach; Define the scope of services; Develop the procurement documents; Issue the procurement documents; Evaluate the proposals; and Negotiate and award the contract.

15 Contract Length Factors to consider when determining contract length: Municipal bylaws; Amortizing equipment and facility costs; Change in law provision; and Contractor service and responsiveness. Collection: 7 years Disposal/Recycling Processing: 5-20 years Options for contract renewal at the end of the term.

16 Performance Specifications A contract should not specify means and methods, but instead specify the desired outcome or performance specifications. Examples: The timeframe in which trash/ recycling should be collected (i.e. 7 a.m. to 5 p.m.); Procedures for the municipality to communicate with the drivers regarding daily problems; Procedures for weather emergencies and road access issues; and Procedures for residents to use to communicate problems or complaints.

17 Liquidated Damages and Penalties Liquidated damages or administrative fees are not punitive, but reflect the actual costs incurred by the municipality as a result of the vendor s failure to perform. Contract penalty is a specific amount set forth in the contract as a disincentive for the vendor to violate a performance standard.

18 Pricing Structure Collection monthly per household amount Processing/disposal fee per ton Additional services, such as collection or processing of yard waste, bulky waste, CRTs or appliances, may be priced separately.

19 Selection Criteria Price; Company stability and finances; History and relationship with the city; References; Proposal service plan; and Location of processing facility.

20 Procurement Challenges Unfamiliarity with procurement for processing services. Unfamiliarity with open-ended procurement. Analyzing financial proposals. Lack of staff with procurement expertise.

21 Role of Outside Advisors Since contracts are typically long term, a professional with 20 years of experience may conduct one or two procurements in his or her career. Outside advisors are typically attorneys and consultants. Cost of advisors much lower than the cost of an unfavorable contract. Some communities require the selected contractor embed the cost of outside advisors into the contract fees.

22 Case Studies 22

23 Case Study Overview City of Olathe, Kansas City of Tucson, Arizona Broward County, Florida City of Hypothetical, Texas City of Sample, Hawaii City of Moscow, Idaho

24 Olathe, Kansas Population of 125,000 Located in the greater Kansas City metropolitan area in Johnson County. In January 2010, transition from a subscription, curbsidesort recycling program to an every other week single-stream recycling program for all single-family residential customers using 65-gallon carts tons per month of collected single-stream material. Prior to 2010, no formal agreement in place with a recycling processor.

25 Olathe, Kansas City of Olathe Recyclable Revenue Share Blended Value Rebate $0.00 to $49.99 $0.00 $50.00 to $74.99 $5.00 to $11.00 $75.00 to $99.99 $11.75 to $29.75 $ to $ $30.67 to $52.75 Over $ $79.79 and up

26 Tucson, Arizona Population of 525,000. Located in Southern Arizona. Weekly single-stream recycling using 96-gallon carts since From its residential, neighborhood drop-off and commercial front-end recycling programs, Tucson collects approximately 48,000 tons of single-stream material annually from residential, neighborhood drop-off and commercial front-end recycling programs. Contract expiration in 2012.

27 Tucson, Arizona Estimated Annual Tonnage of Recyclables Collected by the City of Tucson Program Tons Percent of Total Residential Collection 41, % Commercial Collection 4, % Neighborhood Recycling Centers 2, % Total 48, %

28 City of Olathe and City of Tucson: Consider Multiple Processing locations and Options Issue: Balance facility location with capital cost impact Olathe Solution: Provided option for vendors to utilize facilities considered by the City for a City operated MRF Tucson Solution: Allow vendors to propose use of MRF or transfer station to access the Phoenix market

29 City of Olathe and City of Tucson: Create Win- Win Financial Incentives Issue: Minimize cost of facility and equipment requirements Tucson Solution: 15 year contract with 5 year option to allow for full depreciation Olathe Solution: 5 year contract, with three 5 year extensions Issue: Maximize facility throughout to decrease per ton costs Solution: Exclusively commit all tons collected by the City and contract provision for cooperative purchasing Issue: How to minimize contract provisions that increase costs Example: Require MRF to process 95% of program materials, but operator has flexibility on technical approach providing a performance-based contract terms

30 Broward County: Regional Procurement Increased Competition and Financial Benefit to Local Governments 27 communities conducted a joint procurement for recycling processing Annual tonnage per community varied: Minimum: 38 tons Maximum: 8,416 tons Regional procurement resulted in award of processing agreement for approximately 63,000 tons annually

31 Structure Contracts to Share Market Risk Cyclical nature of pricing in the past reflects variable commodity pricing in the future Critical to develop financial terms that are fair in good and bad markets Consider financial terms that include a processing fee and revenue share Processing fee: compensate processors for cost to provide service, typical range of $30 70 per ton Revenue share: Based on market prices for recyclable materials, typical range of percent

32 USA Weighted Average Commodity Pricing (Oct 2008 April 2013) Variability of Market Prices

33 City of Hypothetical, Texas: Pricing Submitted in Response to RFP Company A Company B Company C Per Ton Processing Fee $25 $40 $75 Revenue Share Percentage to City 25% 35% and when average revenue per ton is greater than $100, 75% share to the City 75%

34 Hypothetical Example Comparison of Results $5,000,000 $4,000,000 Payment / (Cost) to the City $3,000,000 $2,000,000 $1,000,000 $- $70 $80 $90 $100 $110 $120 $130 $140 $(1,000,000) $(2,000,000) $(3,000,000) Company B Company A Company C Weighted Average Market Rate ($/Ton)

35 Recommended Processing/Revenue Share Formula

36 Factors to Consider for Revenue Sharing Publicity potential. Municipalities may be able to generate additional public interest in recycling by publicizing that the more that s recycled, the more the municipality earns. Variability in budgets. Most municipalities want to know the fixed cost of their recycling program for budgeting purposes. If a contract includes revenue sharing, it might be better to exclude the revenue projections from your anticipated budget. Market index. It is common to use a market index such as the Official Board Markets when setting a price threshold above which revenue sharing will occur. For example, when the price for #8 newsprint exceeds $30/ton, the vendor and municipality will split 50/50 the proceeds above $30/ton.

37 Advantages and Disadvantages of Revenue Sharing Advantages to Revenue Sharing: provides a direct financial incentive for a city to increase the quantity of material recycled due to increased revenues for city; provides a financial incentive to educate residents on placing the correct materials into the recycling stream due to increased revenues for city; ensures that the city receives detailed data regarding the quantity and composition of material recycled to calculate revenue sharing and assist with public education; and allows the municipality to reap the benefits of strong commodity markets and can provide a revenue stream to offset the costs of a program. Disadvantages to Revenue Sharing: it is based on market prices and the revenue stream can be unpredictable the level of effort required for contract administration can be higher with revenue sharing, which can make it challenging to manage, especially in smaller cities.

38 City of Moscow, Idaho: Contract Language can Substantially Impact Revenue Sharing Formula to Determine City s Revenue Share City of Moscow Formula Commodity Volume (example) 1,000 tons Recommended Formula Commodity Volume (example) 1,000 tons Weighted Commodity Sales Price (Contract ceiling price) $115 Weighted Commodity Sales Price (Contract ceiling price) $115 Revenue From Sale of Recyclables $115,000 Revenue From Sale of Recyclables $115,000 City s % of Revenue Share 60% Processing Cost ($60,000) City s Revenue Share $69,000 Net Recyclable Revenue $55,000 Processing Cost ($60,000) City s % of Revenue Share 60% City s Net Revenue Share $9,000 City s Net Revenue Share $33,000

39 City of Sample, Hawaii: Understanding Local Market is Critical to Success Processing Fees Disposal Charges Revenue Share Education Fees Net Revenue Net Revenue per Ton City A ($1,506,938) $0 $4,345,020 $42,750 $2,880,832 $67.39 City B ($1,371,420) ($154,381) $4,301,818 $51,300 $2,827,317 $66.14 City C ($1,710,000) ($58,193) $4,301,818 $75,000 $2,608,625 $61.02 City D ($1,496,250) ($58,193) $3,842,957 $42,750 $2,331,264 $54.53 City E ($1,150,000) $0 $3,154,667 $64,125 $2,068,792 $48.39 City F $0 ($45,000) $1,585,652 $1,000 $1,541,652 $36.06 City G $0 $0 $534,375 $34,200 $568,575 $13.30

40 Best Practices 40

41 Proper Planning Leads to a Successful Procurement After contract award, may need 6-18 months before starting contract if there is a need to build a new facility.

42 Conduct a Procurement Workshop: Forum to Provide Key Decisions for Procurement Documents RFP vs. RFB Evaluation Criteria Selection Process Proposal/Bid Format Recycling Processing Procurement Documents (RFP and Contract) Scope of Services Performance Standards Initial and Renewal Terms Education and Outreach

43 Preparation of Procurement Documents Procurement Process/ Proposal Format Rate Structures and Administrative Fees Background Information Disposal and Processing Requirements Recycling Processing Procurement Documents Public Education and Outreach Requirements Equipment and Personnel Requirements Material Acceptance / Rejection Protocol Facility Location, Capacity and Other Requirements

44 Questions Laura Drescher 44